Production unit

FACTORS OF PRODUCTION

Explanation of key terms

i. Needs are things that are essential to human survival

ii. Wants are things that people desire but is not necessary for survival

iii. Input refer to energy, work, power, materials and other resources used in
or required for production

iv. Output refer to the amount of goods and services created or

manufactured during a certain period of time

What are factors of production?

Factors of production are all the resources or inputs needed to create goods or
services in an attempt to make a profit. These resources make the business work.

What are the factors of production?

1. Land (Natural Resources)

2. Labour (Human Resources)
 3. Capital (Man-made Resources)
4. Entrepreneur(ship)

Factor of
Production

Wind is harnessed to produce electricity that powers the electric

Natural Resource
mixer and oven.

The baker’s labor combined with the creativity and skills needed to
Human Resource
actually bake and decorate it

Ovens, cake pans, flour, sugar, butter, and other ingredients used to
Capital
make the cake

An individual who starts the bakery or runs a home-based business

Entrepreneurship
baking and selling cakes to customers

Explanation and role of factors

A. Land is any natural resource found on the earth’s surface, above the earth’s
surface or beneath the earth and is used to produce goods and services. All
gifts of nature. E.g. oil, water, forestry

Role of Land as a factor of Production

i. Needed to obtain raw materials or resources such as water, natural gas, coat
etc.
ii. Needed to build factory shells, buildings etc.

NATURAL RESOURCES FOUND IN THE CARIBBEAN

Natural Resource(s) Country or Countries Use(s)

i. Oil Trinidad and Tobago, -to generate electricity
Barbados, Suriname, -to make petroleum
Jamaica, Guyana, Barbados -to make fuel for vehicles

ii. Gold Guyana, Suriname -to make jewelry

iii. Natural Gas Trinidad and Tobago -to generate electricity

 -to make chemicals such as
ammonia

(fertilizers), methanol
(antifreeze) and urea
(fertilizers)
iv. Limestone Trinidad, Barbados, Jamaica -to make cement
-to make buildings
-for road construction

v. Gypsum Jamaica -to make cement

vi. Bauxite Jamaica, Guyana, Suriname -to produce

aluminum (kitchen
utensils and planes)
vii. Water, Sun Belize, Dominica, Grenada -to produce electricity

viii. Lumber Guyana -for construction

B. Labour is the collective name given to the productive service resulting from
human physical efforts, intellect and skills. Human effort of any kind. For
example the mental efforts of an accountant.

Role of Labour as a factor of Production

i. Important for production
ii. Important for the consumption of goods and services
iii. It is needed as a basis for exchange
Types of labour

i. Skilled Labour is characterized by high education or expertise level; it requires

special training for satisfactory performance. These laborers are capable of
exercising judgment and have knowledge of the particular trade or industry
they work. Eg. Carpenters, electricians, plumbers etc.

ii. Semi-skilled labour is partly skilled; characterized by employees who are

trained but not sufficiently so as to perform specialized work Or This type of
does not require advanced training or specialized skills, but it does require
more skills than an unskilled labor job. People who perform semi-skilled labor
usually have more than a high-school diploma, but less than a college degree
Eg. truck drivers, retail salespersons, bartenders, flight attendants, taxi drivers,
waiters, and security guards.

iii. Unskilled labour refers to workers who possess no particular skills or limited
skillls and likely have no formal education or lower educational attainment.
This type of work usually involves simple duties that don’t require judgment
Eg. Cleaners, sweepers, parking lot attendant’s grocery clerks, fast food
workers, janitors, and parking lot attendants

iv. Managerial Labour is characterized by employees involved in executive and

management functions. Eg. Bosses, Managers, Supervisors etc.

v. Professional labour is characterized by experts who engage in activities or

their jobs with great competence. Eg. Lawyer, Doctor, Teacher etc.

C. Capital refers to money, machinery, tools and buildings (assets) used to

produce goods and services.

ROLE OF CAPITAL IN PRODUCTION

i. Needed to create more goods and services.
ii. Needed to pay the employees
iii. Needed to undertake production that labour would not be able to
complete in a timely manner (machinery for deep sea drilling)
iv. Needed as collateral.
TYPES OF CAPITAL
(a) Fixed Capital is capital which is long lasting and does not change its
form during production or can be used repeatedly. Eg. Machinery,
equipment, tools, fixtures and fittings

(b) Working Capital is capital which is used up in the day to day

operations of the business. Raw materials, stock, cash in hand

(c) Venture Capital is money that is provided by investors to start up the

business. These investors are often referred to as venture capitalist.

NB: Equity is the process of raising capital through the sale of shares in an enterprise
DEFINE ENTREPRENEUR

D. Entrepreneur is the ‘risk bearer’. The one who combines the other factors of
production to make a profit.

FUNCTIONS OR ROLE OF THE ENTREPRENEUR :

I. As a factor of production
- Risk bearer – (entitlement to the profits and losses)
- To combine all the other factors of production
 II. In decision making
- Conceptualizing – come up with the business idea

- Planning – formulating the policies, activities and strategies to

achieve the aim of the business

- Accessing funds or finance – source or obtain the finance needed to

start and operate the business

- Organizing the factors of production – buy land, hire and train workers,
determine how to use machinery to increase production, burrow
monies etc.

- Operating the Business – run the business as well as manufacture the

good or service

- Evaluating and Risk Bearing – check the performance of the business

venture through financial records, balance sheets etc. And undertaking
the risk of investment (to create and market a good or service)

III. In economic development

- Collaborating – to work together with his team to produce or create the
good or service
- To provide goods and services to satisfy citizens
- To create jobs
- To contribute to nation building.

Factors of Production and their rewards or payments

Factor Reward/ Payment

Land Rent
Labour Wages and Salaries
Capital Interest
Entrepreneur Profits